Lesson Learned

FARGO, N.D. — With farmers in the region embroiled in fresher grain company insolvencies, one case — Danielson Grain — has quietly come to a close. Eight years after the fact, farmers and other unsecured creditors got less than 8 cents on a dollar.

Danielson Grain, a sole proprietorship grain brokerage based in East Grand Forks, Minn., was forced into Chapter 7 bankruptcy Feb. 3, 2004. The company, run by Daniel Miller, went insolvent, owing farmers millions. The case was converted to Chapter 11 reorganization Feb.19, 2004, and then back to Chapter 7 liquidation in late September 2004.

Miller, a trucker, purchased grain or took it on deferred price contracts. He had a limited storage country grain handling and storage site (Tilden Site) east of Mentor, Minn., as well as rented storage around East Grand Forks. Immediately after the insolvency, some farmers who delivered grain to the Tilden site and didn’t get paid cut holes in the grain bins and retrieved some of their grain. The value of some of that grain was retrieved, but no one was prosecuted. No criminal prosecutions for company officials came about, either.

In late May 2012, trustee David Velde, an attorney from Alexandria, Minn., issued a final report showing that $2.4 million was paid out in the case, mostly to secured creditors. Secured creditors previously were paid $442,000 out of more than $1 million in claims.

Unsecured creditors earlier had been paid $380,300 in priority claims, Velde says. Most farmers in that group received $4,650 per creditor, based on a federal bankruptcy law that gives farmers priority payment status for money owed for grain purchases. The Internal Revenue Service also was paid $11,600 in priority claims under a similar statute.

More than 200 entities were listed as unsecured creditors. These claims, including farmers and other businesses, averaged $29,856. Those entities will be paid an estimated 7.8 cents on the dollar owed. Unsecured claims include Peterson Farms for $1.9 million; Keywest Farms, $395,000; Flywheel Grain, $350,000; and Erick Nymann/Nymann Farms, $264,000.

Questions remain

Brian Erickson, an East Grand Forks farmer, was the chairman of the unsecured creditors committee.

“I never felt that we were going to get our total amounts back,” Erickson says. “That said, I never thought it was going to be pennies on the dollar, either. The court system is there to liquidate and distribute. They did that. But they never answered the question, in my mind, of where did the money go? Was it speculation? Was it internal theft? We don’t know the answers to these questions.”

Velde, however, says a forensic accountant earlier determined that there was no theft, other than simply marketing losses. Some assets of grain couldn’t be accounted for, he acknowledges. Miller didn’t use a standard record keeping system to account for amounts in and out. “There is no indication that money wound up in a Swiss bank account,” Velde says.

Erickson, whose farming business claimed nearly six figures in amounts owed for grain delivered to Danielson Grain, says he had been lax in trusting the wrong company with deferred contracts. He would deliver grain in the fall, but defer payment until after the first of the year. “That’s how I lost it,” he says.

Since Danielson Grain’s case, he says he now deals more with mainline elevators and deals with more than one grain buyer so that all of his eggs aren’t in a single basket. He says he’s also minimized deferred contracts.

Erickson says he is aware of some farmers who had been doing business with Danielson Grain who aren’t in business anymore. “I’m not sure that this is what tipped them over, but it might have been the straw that broke the camel’s back.”

He says the state should increase bond levels for warehouses and grain brokers, and Minnesota should have a bond issue that would give farmers more protection. The state should look at self-funded indemnity funds to protect farmers in deferred contracts, similar to a program in North Dakota, he says. He adds that weaknesses in the system are apparent in the recent insolvency of Anderson Seed Co., which also was based in Mentor, Minn., but with operations in South Dakota and North Dakota. He adds that there should also be protections for farmers in their pre-pay chemical deals, as exposed in the Falkirk Farmers Elevator shut-down in Falkirk, N.D.